Running a successful equity crowdfunding campaign can make it more likely that a firm will go on to secure venture capital (VC) financing, research claims.
Crowdfunding campaigns are a popular way for peer-to-peer lenders to raise funds and a study by Dr Francesca Di Pietro, assistant professor in business strategy at Trinity Business School, suggests it could give them and others a better chance of larger institutional support in the future.
Dr Di Pietro compared a sample of 290 firms that have raised funds on crowdfunding platforms Seedrs and Crowdcube with startups backed by angel investors.
The research found those who had raised money through crowdfunding were more likely than angel-backed firms to receive VC support.
This was attributed to the level of data that is provided in crowdfunding campaigns, while angel investor-backed firms may have a limited track record.
“In making investment decisions, VCs face substantial information asymmetries associated with the discerning of firm quality,” the study said.
“Young entrepreneurial ventures have usually limited track record, high intangible assets, lack internal funds and have low debt capacity, which makes it challenging for traditional investors to apply proper and effective screening.”
Dr Di Pietro said a successful crowdfunding campaign shows the value in a business by using those who have already invested.
Several P2P lenders including Assetz Capital, CapitalRise, EstateGuru and Mintos have used crowdfunding platforms to raise funds to grow in recent years.
Read more: Mintos raises €7.2m in crowdfunding round